17/06/2019 - 14:58

WA defence sector aims to build on contract wins

17/06/2019 - 14:58

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SPECIAL REPORT: Local businesses are already winning ongoing defence work as WA positions itself as a sustainment hub. Click through for our list of 25 deals won by WA contractors in the past year.

WA defence sector aims to build on contract wins
HMAS Anzac (left) and HMAS Perth under maintenance work at Henderson. Photo: BAE Systems Australia

Local businesses are already winning ongoing defence work as WA positions itself as a sustainment hub.

More than 210 Western Australian companies are pursuing opportunities with French contractor Naval Group for its $50 billion Attack Class submarine construction program.

Those businesses, Naval Group said, had either engaged in expression of interest processes or requested information on potential work.

No WA suppliers have yet been contracted, Business News understands, with the federal government and Naval Group having signed their strategic partnership agreement earlier this year.

But the level of engagement indicates WA contractors are angling for a major role in the submarine build, even if the final product is being assembled in Adelaide.

(Click here to view a PDF version of the full special report)

Two other major capital expenditure programs being managed interstate will provide opportunities for WA contractors.

They are the build of the Hunter Class Frigates, which will be assembled in Adelaide by BAE Systems, and the Land 400 Vehicle Combat System, which is to be manufactured by Rheinmetall Defence Australia in Queensland.

That’s on top of the one big construction project that will be undertaken in WA – the $2.8 billion Offshore Patrol Vessels.

Making waves

WA suppliers have won at least $3 billion of defence contracts so far this financial year, adding to previously announced works packages.

The biggest new contract was that signed by Naval Ship Management for the maintenance of the Canberra Class landing helicopter dock vessels, a 15-year, $1.5 billion arrangement.

Naval Ship Management is a joint venture between Babcock and UGL, and based in Henderson, although most of the Canberra Class work will happen at the company’s Sydney operation.

The business already has a big role as part of the Warship Asset Management Alliance with BAE Systems, the Commonwealth government and SAAB Australia, which are responsible for maintenance of the Navy’s eight Anzac Class frigates.

WAMA won the circa $2 billion contract in 2016, with an initial term of 6.5 years that will likely be extended until the end of life.

Most of that work is undertaken in Henderson.

NSM general manager Joe Smith told Business News the company would be doubling its workforce to about 250, with most of the new recruits to be in Sydney.

The next big sustainment contract opportunities would be for the Offshore Patrol Vessels, and then the Hunter Class frigates.

“The sustainment of the Offshore Patrol Vessels is the next major program that is on the horizon,” Mr Smith said.

“The Commonwealth will soon be looking for a sustainment solution as they seek to prepare for transition from acquisition, and as is the current trend I imagine that solution will require a number of organisations to collaborate.

“We’d certainly see that we could add value to that solution, and we’d be one of several naval sustainment organisations who would have a long hard look at that.”

He said sustainment opportunities for the Hunter Class frigates were still some distance away, with the first vessel to enter service in the late 2020s.

WA will be in a strong position to win the majority of this work, however.

“Aside from the Collins Class full cycle (mid-life) dockings, Adelaide is not really set up as a sustainment hub,” Mr Smith said.

“Typically, from a sustainment perspective, proximity to major naval bases is key.

“It just adds time and costs to the Navy otherwise and is not practical from a crew perspective.

“Having the right network of suppliers and infrastructure is also important, and WA has that, although needs to consider further investment, particularly in relation to docking capability to accommodate the larger naval vessels.”

BAE Systems general manager (Henderson) Luke Simmons said location was key for sustainment work.

“We have quite a large portion of the fleet homeported here at HMAS Stirling,” Mr Simmons told Business News.

“That’s easy access, and strategically important we have them here in WA.”

BAE has about 500 staff on site at its Henderson operation, with about 60 per cent trades and 40 per cent professional services, Mr Simmons said.

The company acquired Anzac Class frigates builder Tenix Defence in 2008.

“As part of (the maintenance contract) we have a major upgrade to the project, the Anzac midlife capability assurance program, where we’re doing a range of engineering changes on the platform to make sure they’re still in service and capable for future deployments,” Mr Simmons said.

The vessels began service from 1996, and are likely to continue for decades.

“The Anzac Class will have to (operate until) 2045, so they’ll require further upgrades and maintenance,” he said.

“We’re not sure what that level of work is going to look like at the moment, but (we’ll ensure) we have the capability to continue providing service to the Anzac Class.”

Investment

There are four notable shipbuilding programs in the pipeline for Henderson.

The biggest is the Offshore Patrol Vessels, 10 of which will be built by Lurssen and Civmec in a contract worth $2.8 billion, starting from 2020.

A hydrographic vessel for ocean research and two Huon Class Mine Hunters are also to be built in WA.

One program already well under way is the $335 million Pacific Patrol Boat replacement program, where Austal is building 21 boats.

The federal government has nearly $1.4 billion of onshore naval investments likely or under way, according to the BNiQ Projects list.

A $367 million expansion of HMAS Stirling Naval Base is ongoing, with Doric the main contractor.

An additional $1 billion is planned for Hunter Class and Offshore Patrol Vessel training centres, both to be at HMAS Stirling. 

The state government will be pitching for more investments at the Australian Marine Complex at Henderson, including $100 million for the Ship Zero concept, which includes a systems program office and through-life support facility.

Other moves might include buying a bigger boatlift.

AMC general manager Jonathan Smith said the state government office charged with supporting the local defence industry, Defence West, was planning to make the facilities compatible with Attack Class and Hunter Class vessels.

“The vessels are getting bigger, they’re longer so they use more wharf space, they’re heavier so we need to have the lift capability that can get those vessels out of the water,” he said.

Business News understands Sydney is the only location in Australia that has equipment large enough to dock vessels such as the Canberra Class, which one industry source suggested is a sovereign risk issue.  

Opportunities

One operation to have put on significant new staff in recent years is the federal government’s ASC.

ASC is responsible for building submarines in Adelaide, but a big chunk of ongoing work on the Collins Class is undertaken in Henderson, including mid-cycle and intermediate dockings.

ASC has grown its WA workforce from 175 when it opened in 2009 to more than 450 today.

General manager WA Craig Vandepeer told Business News ASC had been able to lift staff numbers despite pressure during the resources boom.

“Even during the resources boom, when trade skills were in high demand, ASC West was able to achieve workforce growth through offering competitive wages, a modern work site and professionally challenging, interesting work on one of Australia’s front-line defence assets,” Mr Vandepeer said. 

“Workforce skills that are utilised in the resources and oil and gas sectors are easily transferable to shipbuilding and naval sustainment.”

He said there were about 100 WA businesses in ASC’s supply chain, including Cape, Chandler Mcleod, Trojan and Evolution Marine.

Another was Hoffman Engineering, which Mr Vandepeer said provided specialist measuring and machining services. 

The federal government has floated the possibility of moving full cycle (mid-life) docking of the Collins Class submarines from Adelaide to Henderson, with analysis to be delivered to the Department of Defence in June.

That shift could happen as early as 2022, and bring about 700 jobs to the state.

A second business that has been hiring is Fremantle-based L3 Oceania, which is a subsidiary of US company L3 Technologies.

L3 Oceania general manager Eve Clark said there were huge growth opportunities that had supported an expansion for the business.

“We were less than 70 people at the beginning of last year, now we’re past 100 and we’ll probably get to 120 shortly,” Ms Clark told Business News.

About 85 of those staff were in WA.

Eve Clark says L3 Oceania is taking on bigger competitors. Photo: Gabriel Oliveira.

Part of the reason was the huge capital spending program under way.

“The other part of it is, as we’re getting bigger and more established in this defence area and recognised that we can do the integration similar to the big players, we’re starting to move into bigger scope programs,” she said.

“It’s things like on the Offshore Patrol Vessels; our scope normally would be to provide just the electronic charting system, that’s something we provide across the whole Navy fleet.

“What we’ve just gotten into is to provide the (integrated) navy bridge … there’s a lot of other equipment.”

Ms Clark said L3 Oceania had also broadened beyond Navy work.

“We’ve expanded into Army (work), and now we’re trying to get into aerospace and space as well,” she said. 

“A lot of the processes and rules aren’t that much different across Defence.”

Kristian Constantinides (left) and Airflite defence program manager Steven Murphy. Photo: Gabriel Oliveira

Aerial route

Perth Airport-based Airflite inked two new contracts in the past 18 months as it transitions from a long-term role serving the Royal Australian Air Force’s Pilatus PC9 pilot training aircraft.

General manager Kristian Constantinides told Business News the company, which is owned by three families, had worked on maintenance of the planes for 25 years, but the aircraft were being retired by March 2020.

The replacement planes were contracted on an acquisition and sustainment model, Mr Constantinides said.

“What that does is it puts the power in the hands of the manufacturers, and the manufacturers have evolved to recognise that the value of selling an asset is only 30 per cent of the value of the program,” he said.

“As a general rule of thumb, 70 per cent of the value is in sustainment.”

Nonetheless, Airflite has a range of ongoing defence jobs and commercial work for its 250 employees.

The company’s latest deal was to lease 12 planes to the Air Force to support a cadet engagement program, with four already on tarmac.

A second contract was to manufacture hydraulic rigs in support of the Navy’s MH-60R Seahawk ‘Romeo’ helicopters.

The rigs provide a portable power source for aircraft hydraulics servicing.

Mr Constantinides said Airflite would be exploring export opportunities for the hydraulic rigs, and partnering with Sydney-based Tysci Technologies.

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